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Denver’s DaVita selling its physician network for $4.9 billion

Denver-based DaVita Inc. is selling its physician network arm for $4.9 billion, with aims to use some of that cash to buy back stock.

The sale, to multifaceted health services company Optum, was announced early Wednesday. It will be completed next year after regulatory approval, according to a joint news release from the companies.

Optum is part of UnitedHealth Group, one of the largest health insurers in the United States.

“People have been approaching us about wanting to purchase the DaVita Medical Group for several years now,” CEO Kent Thiry said. “The valuation offered by United/Optum was so attractive that it was in our shareholders’ best interest.”

For $4.9 billion, Optum gets about 300 primary care and specialist clinics DaVita Medical Group operates, as well as 35 urgent-care centers and six outpatient surgery facilities. The group serves about 1.7 million patients each year, with medical networks in Colorado, California, Florida, Nevada, New Mexico and Washington. It will be combined with Optum’s OptumCare division, a network of about 30,000 affiliated doctors who serve millions of patients each year, according to the company.

“The physicians and clinicians of DaVita Medical Group provide outstanding patient care, and we look forward to supporting their continued success in serving their patients and communities,” OptumHealth CEO Andrew Hayek said in the release. “We also look forward to working closely with the leadership team of DaVita Medical Group to combine our capabilities and, supported by the data analytics and technology
capabilities of Optum, enhancing patient care and the value we provide to the communities we serve.”

DaVita, a Fortune 500 company with a corporate headquarters housed in one of the newest office towers in downtown Denver and a second, neighboring tower on the way next year, has a network of more than 2,400 kidney dialysis centers across the country. It also operates 230 dialysis centers in 11 countries outside the U.S.

It first bought its physician network business, then known as HealthCare Partners, for $4.42 billion in 2012. At the time, the network operated 152 clinics.

Thiry said he is proud of DaVita Medical Group’s growth the last five years and he feels United’s $4.9 billion valuation of the network is indicative of how strong its performance has been and how positive its outlook is.

“You would never do that unless you were buying something with a lot of positive momentum,” he said of the price.

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DaVita was valued at $11.2 billion as of Tuesday afternoon. Its stock was trading at $60.93 at market close, down 5.1 percent for the year. The stock rose nearly 13.5 percent Wednesday on the news, trading at $69.12 as of 1:05 p.m. MST.

The company reported a $214 million loss in the third quarter, which it attributed in part to “non-cash goodwill impairment charges of $601 million” from the medical group segment. Thiry explained goodwill impairment is a accounting term referring to formulas a company uses to value otherwise intangible assets on its balance sheet and has no cash impact.

The website Investopedia.com, in its definition of goodwill impairment, notes it is an earnings charge companies include on financial statements when they “identify that there is persuasive evidence that the asset associated with the goodwill can no longer demonstrate financial results that were expected from it at the time of its purchase.”

The money from the sale will be used to buy a significant amount of stock over the next one to two years, as well as to pay down debt and other general corporate uses, Davita’s release said. Thiry said exactly how much stock the company plans to buy back has not yet been determined.

The CEO said the company will be investing in other health services in the U.S. beyond its dialysis centers in the future. Just where those investments will be made is open to speculation.

“We are very excited about exploring new ventures that are consistent with our mission of improving America’s health and health care system,” Thiry said. “We’re thinking about a lot of different opportunities.”

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